Mortgage Loan Types Explained: Conventional, FHA, VA and USDA

What you'll walk away with

• What conventional, FHA, VA and USDA loans are, in plain English
• Fixed versus adjustable rates and why mortgage insurance matters
• How to compare official Loan Estimates from more than one lender

In this guide

• The four main loan categories
• Fixed or adjustable?
• Mortgage insurance, in general terms
• How to shop, step by step
• You choose your lender

Before you tour homes, it helps to know what kinds of loans exist so you can ask better questions when you talk to a lender. I am a REALTOR®, not a lender, so I can't tell you which loan you qualify for or what it will cost. A lender can. This guide explains the vocabulary.

The four main loan categories

• Conventional. A mortgage that is not insured or guaranteed by the government. Many are packaged to meet the standards of Fannie Mae or Freddie Mac.
• FHA. Insured by the Federal Housing Administration and made by approved lenders. The CFPB notes FHA loans can allow lower credit scores and smaller down payments than conventional loans.
• VA. For eligible servicemembers, veterans and surviving spouses. The VA guarantees part of the loan; the lender makes it. See my veterans page.
• USDA. For homes in eligible rural areas, with income limits and occupancy rules. Whether an address qualifies depends on USDA's property eligibility map, so check it for any home you consider.

Fixed or adjustable?

With a fixed-rate loan, the interest rate and your principal-and-interest payment stay the same for the life of the loan, although taxes and insurance can still change your total payment. An adjustable-rate loan starts with a fixed period and then the rate can move, which can change your payment significantly. Ask any lender to show you how an adjustable rate could behave.

Mortgage insurance, in general terms

Many loans require some form of mortgage insurance when the down payment is small, and FHA and USDA loans typically include it. The details, including what it costs and when it can come off, depend on the loan and the lender. Ask for it in writing.

How to shop, step by step

1. Talk to more than one lender and ask each for the official Loan Estimate.
2. Compare the Loan Estimates side by side: rate, fees, mortgage insurance and the cash you'll need at closing.
3. Get preapproved. A preapproval letter shows sellers you are a serious buyer, and it doesn't commit you to that lender.
4. Ask what happens if the appraisal or timeline changes.

You choose your lender

You are free to use any lender. I'm glad to share names if you'd like to compare, but you are never required to use anyone I mention, and I don't set or promise loan terms. The CFPB encourages you to contact multiple lenders and compare offers.

Sources: CFPB: Understand the different kinds of loans · CFPB: Shopping for a mortgage · VA: Home Loans · USDA Rural Development: Single Family Housing Guaranteed Loan Program

Questions to bring to a lender

• Which loan types might fit my situation?
• Can I have an official Loan Estimate to compare?
• What are the rate, fees and cash needed at closing?
• Is this fixed or adjustable, and how could the payment change?
• Will I pay mortgage insurance, and for how long?
• What happens if the appraisal or timeline changes?
• Can I get a preapproval letter for my offers?

About this guide

Joseph Ford is a licensed North Carolina real estate broker and REALTOR®, not an attorney, lender, tax professional or financial advisor. This guide is general educational information, not legal, tax, lending or investment advice, and it is not an offer or commitment to lend. Laws, forms, rates and program terms change; confirm current details with the sources linked above and with the appropriate professional. You are free to choose any lender, attorney, inspector or other provider, and I will never require you to use one I mention. Equal Housing Opportunity.